Deal reached for huge desalination plant

SAN DIEGO (AP) — The San Diego County Water Authority announced a tentative agreement Thursday to buy the entire output of what will be the Western hemisphere's largest seawater desalination plant, clearing a major hurdle for construction to begin.

The plant in Carlsbad will produce 50 million gallons a day, enough to supply about 7 percent of the San Diego region in 2020.

The agreement is subject to approval by the water authority board. Upon the board's approval, the developer — Poseidon Resources LLC — would sell bonds to finance 82 percent of the project, which is estimated to cost about $900 million to build.

The water authority expects the plant in the north San Diego suburb and a 10-mile pipeline to be completed in 2016.

Under the pact, San Diego would pay $2,042 to $2,290 for an acre-foot of water — nearly all of it to Poseidon and more than twice what it pays to buy water from outside the region. For supporters, the premium is well worth the price to make the region less dependent on imported water from the Los Angeles-based Metropolitan Water District of Southern California, which supplied almost all its water in the early 1990s and still provides nearly half.

"The story of San Diego has always been about the quest for reliable water," said Dennis Cushman, the San Diego agency's assistant general manager. "The history is drought and water supply shortage and being subject to decisions made by a board of directors in downtown Los Angeles ... This is about water reliability."

The water authority, a wholesaler to 24 cities and agencies including the city of San Diego, says the average household water bill will increase about $5 to $7 a month when deliveries begin. It estimates the cost is comparable to other new, local sources of drinking water, like treated toilet water or briny groundwater.

The 30-year purchase agreement calls for the San Diego agency to purchase between 48,000 and 56,000 acre-feet of water a year from the plant, or enough to supply about 100,000 homes.

Poseidon, based in Stamford, Conn., was plagued with cost overruns and delays at its desalination plant in Tampa, Fla., which produces up to 25 million gallons a day.

Ken Weinberg, the San Diego agency's water resources director, said Poseidon underestimated costs on the Tampa plant and had problems with its contractor that he is confident will not be repeated.

"In the front of our minds was to Tampa-proof this project," Weinberg said recently.

Poseidon spokesman Scott Maloni said the company learned from the Tampa project and that the San Diego agency is fully protected if the plant fails to perform as promised.

"This is definitely an important milestone, one that we've been looking forward to for a long time," Maloni said.

Tom Pankratz, editor of Water Desalination Report, said the Carlsbad plant will easily become the hemisphere's largest seawater desalination plant, surpassing one in Trinidad and Tobago that produces up to 40 million gallons a day.

Desalination has helped quench demand in Australia, Saudi Arabia and other countries lacking fresh water, but it has struggled to catch on in the United States.

The plants can blight coastal landscapes, require massive amounts of electricity and dump millions of gallons of brine back into the ocean that can, if not properly disposed, be harmful to fish.

"The (Carlsbad) project will be somewhat of a bellwether or indicator of how desalination progresses in the U.S.," said Pankratz. "Some say it will be the last one. Others say the dam will burst and the floodgates are open."

Poseidon proposed the project more than a decade ago and has been negotiating with potential buyers since shortly after the California Coastal Commission approved it 2009, clearing the last major regulatory hurdle. Last year, Stonepeak Infrastructure Partners LLC agreed to pay up to $150 million for an 18 percent stake in the project.

Poseidon has also proposed a desalination plant of the same size in Huntington Beach, near Los Angeles.

San Diego began to consider desalination in the early 1990s, when a drought led it to conclude that it needed a more diverse, reliable water supply. In 2003, it brokered a deal to buy Colorado River water from California's Imperial Valley in the nation's largest farm-to-city water transfer.

The agency is also considering desalination plants at Camp Pendleton Marine Corps Base and Playas de Rosarito, Mexico, just south of the U.S. border.